Efficacy of Monetary Policy and Limited Asset Market Participation

Giovanni Di Bartolomeo () and Lorenza Rossi ()

Macroeconomics from EconWPA

Abstract: A common wisdom argues that limited asset market participation reduces the efficacy of monetary policy. This paper investigates this issue in the context of the New Keynesian dynamic stochastic general equilibrium models. Despite limited participation actually reduces effects of interest rate policies by reducing the effect on inter-temporal allocation of consumption, we find an opposite result. Monetary policy becomes more effective as long as the share of agents who cannot access to the financial market increases. The reason has a very Keynesian flavor.

Keywords: Consumers’ heterogeneity; efficacy of monetary policy; rule- of-thumb. (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
Date: 2005-08-25
Note: Type of Document - pdf; pages: 9
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